Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Oct-2001 - Nov-2016

Category > Accounting Posted 18 Aug 2017 My Price 9.00

assets and a debt ratio

3.3   Imagine a corporation with $1,000,000 of assets and a debt ratio of 40%. ROE (return on equity) is expected to be 20% for the foreseeable future. Assume the firm keeps the same amount of debt indefinitely (as opposed to keeping the same debt ratio).

a) What do you expect the firmAc€?cs earnings to be for the next 3 years if the firm doesnAc€?ct pay out any dividends or re-purchase any shares?

b)If the firm doesnAc€?ct pay any dividends or re-purchase any shares, at what rate would the firm grow from year to year?

c) If the firm pays 50% of its earnings as dividends, at what rate would the firm grow from year to year?

d)If the firm uses 80% of its earnings to re-purchase shares from its shareholders, at what rate would the firm grow from year to year?

e)If the firm pays 50% of its earnings as dividends, and uses an additional 20% of its earnings to re-purchase shares from its shareholders, at what rate would the firm grow from year to year?

f) What does the term Ac€A?Sustainable Growth RateAc€?? mean? Would the amounts you have calculated in parts b. to d. equal the Sustainable Growth Rate for the firm?

Answers

Maurice Tutor
(5)
Status NEW Posted 18 Aug 2017 10:08 PM My Price 9.00

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